EQ: Fed Chair Janet Yellen’s first policy meeting and press conference took place Wednesday. What were your thoughts on the FOMC’s latest move?

Stovall: Well, the Fed really did not do or say anything that was unexpected, in my opinion. They were expected to continue with their tapering program by reducing $10 billion of stimulus, as well as remove the targeting of 6.5 percent unemployment as a level where they would begin to consider raising short-term interest rates.

They did exactly as most Fed watchers thought. The reaction by the market, however, left a lot of people scratching their heads. We saw the yield on the 10-year note rise, as well as the value of the U.S. dollar go up. We also saw gold prices decline.

So that would suggest to me that maybe investors were thinking Janet Yellen’s notes of her first meeting as Chair indicated that she was less of a dove on interest rates than the market had anticipated. One reason for that is she reiterated their desire to maintain a 2.0-percent inflation threshold.

That would imply that they might consider raising rates should the Personal Consumption Expenditure (PCE) Price Index—which is their preferred measure of inflation—rise from the mid-to-low 1-percent area to 2.0 percent, before which they start raising short-term rates. Maybe the market was looking more at the zone of 2.0 to 2.5 percent. However, Fed Chair Yellen’s comments seem to indicate that there was not a zone, but actually a specific threshold at 2.0 percent.

EQ: The Fed dropped the “Evans Rule” of 6.5 percent unemployment. Does this change anything in terms of projecting their moves going forward?

Stovall: The reason that they removed the 6.5-percent threshold is because the unemployment rate is approaching that level much more quickly than they had expected it to. I believe that they thought it would take many more quarters—possibly to the latter part of 2014 and maybe even 2015—before we saw such a low level of unemployment.

But with the participation rate continuing to decline—meaning more and more people are leaving the workforce—I believe the Fed might see that unemployment rate as being artificially pressed lower and therefore don’t want that figure to serve as the trigger when it does not reflect what they meant it to reflect.

Stovall: I believe it is, at least for now. The market took off on Monday because there was still the outside possibility that the referendum on joining Russia would be voted down. If that were the case, I think investors believe that Russian tanks would be rolling into Crimea.

But with Crimea voting to become a part of Russia, it removes, in a sense, the threat of physical military force. Also, Vladimir Putin’s comments saying that he does not want to break up Ukraine might have helped investors feel a little better. Of course, he did not say that he doesn’t want to take all of Ukraine. He simply said that he might not just want to take a part of it.

So this obviously has yet to be fully resolved, but if it does not affect the trajectory of the global economic recovery, then I don’t think that investors will regard it as a big threat to future price appreciation.

EQ: We’re still in the first quarter of 2014, but we’re already noticing that expectations for the year and trending downward. How much of this had to do with the bad winter and how much is this just overall economic softness?

Stovall: I think that has yet to be decided. First quarter earnings were expected to be up about 5 percent based on estimates from Jan. 2, 2014. However, S&P Capital IQ consensus estimates now point to only a 0.7 percent increase in Q1 earnings.

The other quarters have also been revised lower with full-year earnings estimates being up 7.6 percent versus the beginning of year target of 10 percent.

So just as we are beginning to see economic data that points to the softness coming almost exclusively the foul winter weather, so too might we find out that the earnings shortfalls were affected by the wind and ice. Maybe we end up seeing an upward revision of corporate earnings as the year progresses and indeed see that it is backend loaded.

As I wrote in last week’s S&P Capital IQ's IPC Notes, “We therefore believe it best to await the fundamental revelations of melting snowbanks.”

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